The ECB risks being late on the rate cut

The ECB risks being late on the rate cut

I write this with all due respect for the only institution that has proven to have an irreplaceable role in Europe. But every time I see, hear or read the exploits of Christine Lagarde I am reminded of an old joke by Milton Friedman, who, while chatting with McChesney Martin, historic president of the New York Stock Exchange and then of the Federal Reserve between 1951 and 1970, addressed him like this: «You central bankers always make the wrong decisions. And if by chance you get the right one, you do it at the wrong time. And if you do it at the right time, you get it for the wrong reason.”

I say this not so much and not only by recalling the rather turbulent debut of the leadership of the ECB. It was March 13, 2020, already in the pandemic crisis and, as soon as I sat in the armchair that was Mario Draghi, Lagarde made a fuss: «I don’t intend to go down in history for a “Whatever it takes” two… We are not here to reduce spreads, it’s not our job…». These few, absent-minded words were enough to cause the financial markets to collapse and the rate differentials of the entire Club Med to soar.

The beginning of Lagarde’s troubles

As he said Warren Buffett, it takes a lifetime to build a reputation, but it only takes a minute to lose it. From that injury onwards, the president of the European Central Bank took months and months to regain credibility. Then hyper-inflation exploded, dammit Putin, and Lagarde’s troubles began again. In an almost unanimous opinion, the Eurotower moved late and badly, in tow of the Fed, in the initiation of monetary tightening. Jay Powell he inaugurated the season of US increases in March 2022, and in ten adjustments in fifteen months he brought them up to 5-5.25%. Then, after a pause in June 2023, the final adjustment arrived on 27 July 2023 which reflects the current range, i.e. 5.25-5.50% (maximum level of the last twenty years). There ECB he followed closely, but at a certain distance. The first increase decreed by the Eurotower is in July 2022, just a quarter of a point. Since then – as in the American case – ten consecutive crackdowns, up to the current 4.5%, stable after a pause that has lasted since last September.


Now, considering that in December two years ago the chis life had exceeded the 10% ceiling, while in January of this year l‘inflation harmonized ofEurozone And dropped to 2.8%, operators and savers expect a rapid fall in interest rates. The market is still betting on a first cut in April, and then on a series of adjustments of a quarter of a point each by the end of 2024.

However, in the meantime, the economic situation seems to have become a bit more complicated. The ECB niche. The stalemate on monetary policy in Frankfurt is justified by a new and unexpected rise in inflation core (the one adjusted for the costs of energy and food) which in January, although decreasing, did not move away from 3.6%, i.e. almost double the 2% that the Euro-Atlantic central bankers have set as the target line. Piave. “The war on inflation is not yet won” is Lagarde’s battle cry.

The risks of arriving late for the ECB

We’ll see what he decides Powell. God strike us if we think of agreeing with the Amatriciana sovereignists Chigi Palace, who with total contempt for the ridiculous accuse the ECB of anti-patriotism. But the risk that the European Central Bank is once again ill-timed – cutting too little too late, as he rightly writes Alessandro Penati on Tomorrow – is unfortunately very high.

There is another famous anecdote, which this time is due to the former US Treasury minister, Larry Summers: «The Fed’s policy has always been to stop serving cocktails when the party started to heat up. Now it became to continue serving cocktails until the first person was taken to hospital with alcohol poisoning.” Well, mutatis mutandi, it would be unpleasant if Lagarde started serving cocktails again when the drunk has already kicked the bucket.

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